It was only when a colleague telephoned him last weekend to alert him to her alleged plans to lure key members of her team away from MGAM that he began to reconsider the appointment.
Nevertheless, Mr Smith said Mrs Horlick could still have been reinstated had she not launched a media campaign against her former employers. "It would have been difficult but not impossible to bring her back," said Mr Smith.
Her claim for pounds 1m compensation will also be fiercely resisted.
Mr Smith also expressed his admiration for Mrs Horlick but said he had no choice but to suspend her when the allegations that she had been attempting to solicit other staff to leave emerged.
Mrs Horlick strongly denies that she was planning a team move and claims that the suspicions stemmed from a misunderstanding about a lunch she had with an old friend from a rival bank.
However, MGAM insisted over the weekend that it stood by its course of action.
MGAM had no intention of making Mrs Horlick's suspension public. The plan had been merely to issue a confidential note to staff to reassure them that the suspension was procedural and did not involve any suggestion of impropriety. However, even before the note was completed, news of her suspension was flashing around the world on agency wire services.
Mr Smith's comments are a blow to Mrs Horlick, who spent Friday going from one Morgan Grenfell office to another in the hope that she would indeed be welcomed back into the fold. "I am making my stand, it's up to them to respond. I am saying to them: `please give me my job back'," she said.
After trailing around the London offices, Mrs Horlick flew to Frankfurt to confront management at Deutsche Bank, MGAM's parent. She said she was extremely pleased with her two-hour meeting with representatives of the bank's personnel and legal departments.
However, MGAM sources made it clear yesterday that her meetings were a courtesy.
A backlash was also developing over what one fund manager described as "hysterical" behaviour by Mrs Horlick. Recruitment consultants expressed their shock at her actions, with more than one wondering whether any other firm would employ her as a result.
"A credibility factor has arisen now," said one headhunter. "However good she was at making money, people will wonder whether she's going to jump off the ship tomorrow."
Andrew Kirton, investment consultant at pension fund advisers Sedgwick Noble Lowndes said: "We have heard a lot about superwomen this week, but very little about the pension fund clients. This should not be a star system business, but one which takes regard of its clients' needs."
On Friday, Mr Smith issued a statement to staff saying that "no individual was bigger than the institution" and oversaw the writing of 1,000 letters by Mrs Horlick's former staff to Deutsche Morgan Grenfell's UK institutional clients reassuring them that the managers "remained loyal to the business".
Mr Smith has also been comforted by unaudited analysis of the industry's 1996 performance.
"When this result is confirmed it will leave us with an excellent record. We are upper quartile last year and upper decile over both three and five years. That is a performance which is difficult to beat," he said.